UNIT TITLE III: Place & Distribution

Unit Code UNIT TITLE: Place & Distribution

Location Duration: Marks: 12
: Class Learning Outcome Knowledge Performance Teaching &
Training
Room Evaluation Evaluation
Session 1: Meaning and Importance of Place Method

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UNIT III : Place & Distribution Page 1

 Session 2: Types of Distribution
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Session 3: Functions of Intermediaries

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UNIT III : Place & Distribution Page 2

UNIT TITLE: Place and Distribution

Unit 3

Learning Objectives

After reading this unit, students will be able to:

 Meaning and importance of Place

 Functions of Place
 Types of Distribution
 Functions of intermediates
 Factors affecting the choice of Channels Of Distribution

INTRODUCTION

Two important elements of marketing mix, i.e. product and pricing have already been discussed
in the previous chapters. However just producing a product and pricing does not ensure success of a
product in the market. It is equally important that (Place utility). This is only possible if each firm
concentrates and understands the importance of distribution of its products. The present unit discusses the
meaning of place, importance of place, role and functions of a channel of distribution, and factors
influencing the choice of a distribution.

Session I: Meaning and Importance of Place

Every marketing activity starts with the customer and ends with the customer. Every marketing
activity is customer driven and a customer would only purchase a product only when it is available to
him. Availability of product depends upon efficiently managed place. Place is the process of moving
products from the producer to the intended user. Place in marketing mix refers to the channel, or the
route, through which goods move from the source or factory to the final user.

UNIT III : Place & Distribution Page 3

 Distribution mix

Physical distribution Channels of distribution

Transportation Wholesalers
Warehousing Retailers

Fig 3.1: Place in marketing mix

In marketing, place has many names. Place is also known as channel, distribution or intermediary. Place
is the mechanism through which goods move from the manufacturer to the consumer. In case of
services place is moving of services from service provider to consumer. Place could be the
intermediaries, distributors, wholesalers and retailers. Let’s go through few definitions of marketing
gurus on place to have more clarity.
Q. Can there be intermediaries for services, taking into consideration, that the producer and consumer have
to be present together?

According to Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that
best fulfil the firm’s objective. This set of marketing intermediaries is called marketing channel.”

According to William J. Stanton, “A distribution channel for a product is the route taken by the title to the
goods as they move from the producer to the ultimate customer.”

1) The industrial consumer (indirect transfer of ownership) ii) household consumers (direct transfer of
ownership) at a profit.

2) Distribution means to spread the product throughout the marketplace such that a large number of
people can buy it.
3) A good distribution system quite simply means the company has greater chance of selling its products
more than its competitors.
UNIT III : Place & Distribution Page 4
 Definition by Kotler indicates that distribution channel is nothing but set of intermediaries. While
Stanton indicates transfer of title of goods from producer to customers as another angle of place.

But is transfer of good possible without intermediaries? It is only possible if the company sells
directly to customers either using 1) direct selling option to customers or 2 ) online selling. This issue
will be touched upon in the chapter in types of channels of distribution.
Q. If intermediaries were dispensed with, name two ways in which goods could reach the buyer

Place or Channel of distribution is concerned with the movement of goods from the point of production to
the point of consumption. The term 'Channel of Distribution' refers to the route taken by goods as they flow
from the Manufacturer to the consumer. This flow of goods may mean its physical distribution and/or the
transfer of title (ownership).
Q. Which two things change w hen goods are distributed?
Ans. Goods are phys ically delivered from the manufacturer to consumer and transfer of
ow ners hip takes place.
Channels of distribution are mainly concerned with the transfer of title to a product which may be affected
directly or through a chain of intermediaries. It comprises of set of four participants (components) of
distribution system:

(1) Manufacturers,
(2) Intermediaries, → wholesaler, retailer, agent,
(3) Facilitating agencies, →transporter, warehouse, banks, insurance and
(4) Consumers

The starting point of distribution is the Manufacturer who produces the goods. The second participant
being Intermediaries, they are in direct negotiation between buyer and seller. The y identify the needs of
the consumers and the manufacturers who produce various products. In the process, they perform
various functions like 1 ) buying, 2 ) selling, 3 ) assembling, 4 ) standardization and 5) grading,6)
packing and packaging,7) risk bearing. etc.
Q. A manufacturer has to choose between two intermediaries, who are equally well placed and charge the
same commission. On what basis would he decide?
Ans. On the basis of who performs more of the services viz. 1) buying, 2 ) selling, 3 ) assembling,
4 ) standardization and 5)grading,6) packing and packaging,7) risk bearing
The third participant being the Facilitating agencies are the independent business
organisations other than intermediaries. These agencies facilitate the smooth distribution of goods from
UNIT III : Place & Distribution Page 5
 producers, through intermediaries, to consumers. The major facilitating agencies are 1) banking
institutions, 2 ) insurance companies, and 3 ) transportation agencies and 4 ) warehousing companies.
The fourth category of participants in the distribution system i.e., consumers, are the final destination

for goods in the distribution system who purchase for final consumption.

Let’s take a case of consumer goods, the manufacturer might be a remote location and consumers are
scattered geographically throughout India. The goods can only reach the consumers with the help of
intermediaries in between the manufacturer and consumer; these intermediaries can be retailers,
wholesalers, distributors, warehouses and even the Internet make up the 'place' aspect of the marketing
mix. All of these 1) Move stock and 2) Sell goods.

Q. Which two major functions do all intermediaries do?

In other words, it is how your product is bought and where it is bought. This movement could be through
a combination of intermediaries such as distributors, wholesalers and retailers. In addition, a newer
method is the internet which itself is a marketplace now. The right place means greater chances of
sales over a longer period of time. This translates into 1) greater market share, 2) more profits and 3)
better ability to track the changes in the marketplace in → thinking, styles, fashion and needs. For
Example, you are a soap manufacturer in Haryana and your c u s t o m e r s a r e s c a t t e r e d i n a l l 2 9
s t a t e s o f I n d i a f r o m J a m m u a n d K a s h m i r t o Kanyakumari. It is not possible for manufacturer
to sell directly to consumers without the intermediaries mentioned or place consideration.

Q. What takes the role of Promotion Mix as well as Place Mix in the modern days?
Ans. The Internet

So distribution roughly covers the following AREAS or Distribut ion involves doing t he following t hings:

Distribution can make or break a company.

1. A goodUNIT
transport system&to
III : Place take the goods into different geographical areas to movePage
Distribution goods
6 from the
raw-material state to producers and then on to consumers.

2. A good tracking system to monitor i) that the right goods reach at the right time in the right
quantity, ii) the places where the product can be placed to maximize opportunity
3. A good packaging, which takes the wear and tear of transport.
4. A system to take back goods from the trader.

Functions performed by channels of distribution

Channels of distribution help in smooth flow of goods by creating possession, place and time utilities.
The functions performed by the middlemen in distribution channels may be grouped into three categories
as follows:

1) Transactional Functions

2) Logistical Functions

3) Facilitating Functions

1) Transactional Functions: the primary function of distribution channel is to bridge the gap between
production and consumption for which various transactions performed for movement of the
go ods from one place to another are called transactional functions. 1 ) Buying, 2) selling a n d 3 ) risk
b e a r i n g f u n c t i o n s c o m e u n d e r t h i s category . Buying t a k e s p l a c e a s producers sell the goods
and intermediaries buy them. Later intermediaries sell the goods and consumers buy them. Because of
this buying and selling by the channel participants, title to goods changes hands and goods flow from
producer to consumer. There has to be willingness of buying and selling in the transactions involved ,
on the other hand there will be no transaction if there is no willingness for buying and selling, there
would be no transaction. When goods are bought, it involves risk also. For instance, an intermediary
bought goods from the producer with the intention of selling at a profit but Government announced
a decision due to which price of product fell down which can lead to loss. All the participants in the
distribution channel must assume such risk of loss.
Q. Site an example for risk arising in the Transactional function

2) Logistical Functions: The functions involved in the physical exchange of goods are called
logistical function. The goods are produced by producer /manufacturer and assembled in different
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 assembly lines. Assembling refers to the process of keeping the goods, purchased from different
places, at a particular place. Assembling of goods is done only after they have been bought. Not
only 1) assembling but also 2 ) storage, 3 ) grading, 4 sorting and 5 ) transportation are essential
for physical exchange of goods which forms logistical functions of physical distribution.
Q. List the Logistical functions of Physical Distribution

Grading and packing of goods facilitate handling and sale of goods promptly. Proper storage of goods
prevents loss or damage as well as helps regular supply of goods to consumers whenever t h e y want.
Transportation m a k e s goods available a t places where buyers are located. In the channel of
distribution all these functions are performed so that goods may reach t h e market p l a c e a t p r o p e r
t i m e a n d m a y be con ven ien tly s o l d t o th e ultimate consumers.

3) Facilitating Functions: These functions facilitate both the transaction as well as physical exchange
of goods. These facilitating functions of the channel include post-purchase service and maintenance,
financing, market information etc. Sellers i) provide necessary information to buyers in addition to
ii) after sales services and iii) financial assistance in the form of Sale on credit. Similarly, i v ) traders
are often guided by manufacturers to help them in selling goods, while v ) the traders also inform
manufacturers about the customers' opinions about the products.

Thus, a channel of distribution performs a variety of functions such as buying, selling, risk bearing,
assembling, storage, grading, transportation, post-purchase service and maintenance, financing, market
information, etc. But the relative importance of storage is more important for perishable goods and
bulky material such as coal, petroleum products, iron, etc. In the case of automobiles, computers and
mobiles etc after sales service is very important.

Some other important functions are product promotion which involves advertising and sales promotion
activities organized by manufacturers. Middlemen are also involved in various activities li ke
demonstration of product, display and contest etc. to increase the sale of products.
Q. Which areas of Promotion mix are engaged in by components of Place Mix?

Negotiation takes place between manufacturers and customers before closing a deal. Negotiation in terms
of i) quality of product, i i ) guarantee, iii)after sale services and finally iv) price takes place before the
transfer of ownership is done.

Importance of channels of distribution in marketing of products and services/ MERITS OF MIDDLEMEN

1.Providing UNIT
Utilities
IIIof Trade:&Producers
: Place are experts in their field of product creation of Form Page
Distribution Utility.
8 But they
do not have knowledge of all the places where demand has arisen. They lack the expertise in long- term Storage
& protecting the goods, Transport & Distribution, Grading, Breaking the Bulk & Packing. It is the middlemen
who conduct these functions thus bring to consumers→ Time Utility, Place Utility (by physically distributing
the goods to all the right places of demand).

2. Specialization_ Distribution channel members can provide greater efficiency in making availability of goods
to the target markets through their contacts, specialization, experience and scale of operation.
3. Fight Tough Market Conditions: The company that spreads its products wider and faster into the market
place at lower costs than its competitors will make greater margins, absorb raw material price price better
and last longer in tough market conditions.
4. Create Exchange Efficiency-Intermediaries create exchange efficiency by decreasing the number of
contacts needed but they are more effective than manufacturers. Thus Middlemen bring economy of effort in
marketing.

5.Globalizati on.
Distributing through middlemen has been the main cause for expansion of trade and globalization of markets.
It brings cultures together.

6. Increased the standard of living- By enabling the distribution of goods and expanding markets nation and
world –wide, they have increased the standard of living of consumers to greater levels. E.g. In the farthest
villages, and far-flung towns, we can see people using Lux soap, washing clothes with Rin powder, or drinking
UNIT III : Place & Distribution Page 9
Coke. By competing for wider distribution with one’s rivals, middlemen enable better and better products to
reach the consumers thus again increasing their standards of living.

7. Filling Communication Gap -Middlemen are the ones depended upon for filling up the communication gap
between the producer who is situated far from the consumers. Middlemen from the shop-floor level (salesmen)
→convey to the retailer, →agent and → wholesaler collect information on trends on changing demand,
fashions, needs, changes in the composition of the consumers and hence in the target market segment and pass
on this vital piece of information to the businessmen and help them to incorporate these changes into the
products, helping them to stay on edge with their competitors.

8. Price stabilization: They enable price stabilization and lowering of prices in fact, by allowing economies of
large-scale production and economies of large-scale distribution. Economy in production/ didtribution means
that the cost of production / distribution is reduced.

9. Brings employment opportunities_ directly in the form of wholesalers, agents & retailers, and indirectly as
warehouses, transport providers etc.

LIMIITATIONS OF MIDDLEMEN

1. Middlemen charge a commission for their services which apparently add to the cost of the final product.

MIDDLEMEN’S COMMISSION IS JUST AND MINIMAL PAYMENT FOR A NUMBER OF

INDISPENSABLE FUNCTIONS THEY DO NAMELY:

(I) STORING & PROTECTING THE GOODS IN A WAREHOUSE TILL THE TIME OF SALE
AND
(II) DISBURSING THEM TO ALL THE AREAS OF DEMAND
(III) BEING IN POSSESSION OF THE INFORMATION OF ALL THE CONTACTS OF WHERE
DEMAND EXISTS – THUS HELPING THE MARKETER TO INCREASE HIS SALES AND
TARGET CONSUMERS

2. Consumers accuse that middlemen are responsible for the unethical activity of creating an artificial scarcity
for the goods to control the supply (black marketing), and hence to manipulate the price of the product

ONCE AGAIN, IT IS A FEW, WHO RESORT TO SUCH ANTI-SOCIAL AND UNFAIR TRADE
PRACTICES AND BECOME A PARASITE ON SOCIETY. MIDDLEMEN TOO DEPEND ON, AND NEED
THE SUPPORT OF THE PRODUCERS AND CONSUMERS AND CANNOT ANTAGONIZE THEM.

3. Consumers also attribute the adulteration happening to the goods to the hand that middlemen have in the
product after it leaves the manufacturers.

THIS LIMITATION CAN BE NEGATED BY POINTING OUT THAT THE ADULTERATION OF GOODS
LIKE RICE, PULSES CANNOT BE COMPLETELY ATTRIBUTED TO MIDDLEMEN AS SOME OF IT
COULD BE OCCURING AT THE LEVEL OF THE PRODUCER TOO. IT IS THE WORK OF THE
GOVERNMENT TO WEED OUT AND TO CONTROL SUCH GOINGS ON, AND HENC E THE
UNSCRUPULOUS ACT OF A FEW CANNOT BE ATTRIBUTED TO BE A BLACK MARK AGSINST
ALL MIDDLEMEN.
UNIT III : Place & Distribution Page
10
4. Middlemen would not take up distribution to remote areas, which are then not catered to and let out, if it does
not happen to be profitable for them and worth their while.

THIS IS TRUE OF ANY ENTERPRISE,

 EVEN A PRODUCER WOULD NOT MAKE GOODS FOR A MINIMAL CUSTOMER SEGMENT,
AS IT WOULD NOT BE PROFITABLE.
 BUT IT IS ONLY DUE TO THE WIDE SPREAD NETWORK OF MIDDLMEN, WITH THE HELP
OF DEVELOPED TRANSPORT, WAREHOUSING & COMMUNICATION FACILITIES, THAT
CONSUMERS THE WORLD OVER HAVE THE USE OF POPULAR BRANDS AND HAVE
INCREASED THEIR STANDARD OF LIVING.

5. Activities of middlemen cannot be controlled, and they take undue advantage in deciding

 Where it is profitable to distribute the goods,

 At what price in what quantities
6. Small businesses and new businesses do not get the benefit of getting the dealership of large wholesalers
/retailers who consider them as unprofitable

(Q. “One can eliminate Intermediaries, but their activities cannot be eliminated.” Comment/Criticize/Critically
analyse the statement)

Hint:- Each limitation can be written along with how it is overcome by MERITS of having
middlemen(THE SENTENCES IN CAPITALS). For LIMITATIONS ONLY GIVE THE NEGATIVE
POINTS.

Q1. The primary function of a distribution channel is to bridge the gap between
_ and _ .
Q2. Buying, selling and _is a part of transaction function.

Q3. A close study of the__ _ is extremely essential. A sound marketing

UNIT III : Place & Distribution Page

11
 plan depends upon thorough market study.

Q4. A customer bought a product and has defect and post purchase service is desired by customer
then_ function of channel of distribution is performed.

Q5. Four participants of distribution system are manufacturers, intermediaries, facilitating

agencies, and .
Q6. _is also known as channel, distribution or intermediary. Q7. It is
important that the product is made _ at a place where
the customer would like to buy it.
Q8. Middlemen are also involved in various activities like demonstration of product, display and
contest which form a part of _ function.

Q9._ refers to the process of keeping the goods, purchased from different
places, at a particular place.

Q10. In _ , middlemen procure supplies of goods from a variety of

sources, which is often not of same qualit y, nature and size and groups them in homogenous groups.

Ans: 1 production and consumption 2. Risk bearning 3. Market 4. Facilitating 5. Consumers

6. Place 7. Available 8. Product promotion 9. Assembling 10. Sorting

UNIT III : Place & Distribution Page 12

 Session II: Types of Distribution Channels

A channel of distribution consists of THREE TYPES OF FLOWS: -

 Downward flow of goods from producers to consumers
 Upward flow of cash payments for goods from consumers to producers
 Flow of marketing information in both downward and upward direction i.e.
Flow of information from producers’ to consumers on i ) new products, i i ) new uses of
existing products etc.
And flow of information in the form of feedback on the wants, suggestions, complaints, etc from
consumers/users to producers.
An entrepreneur has a number of alternative channels available to him for distributing his products.

The distribution channel marketing systems include:

A.CONVENTIONAL MARKETING SYSTEM

B. UNCONVENTIONAL MARKETING SYSTEMS

A.CONVENTIONAL MARKETING SYSTEM

DIRECT

Producer-Consumer

INDIRECT

Producer-Retailer-Consumer

Producer-Wholesaler-Retailer-Consumer

Producer-Agent-Wholesaler-Retailer-Consumer

B. NON - CONVENTIONAL MARKETING CHANNELS UNCONVENTIONAL MARKETING SYSTEMS

 Horizontal marketing system

 Vertical marketing system
 Multi-channel distribution system

UNIT III : Place & Distribution Page 13

 A conventional marketing channel consists of one or more independent producers, wholesalers and retailers.
Each is a separate business seeking to maximize its own profits, even at the expense of profits for the
network as a whole. No channel members have much control over the other members, and no formal
means exist for assigning roles and resolving channel conflicts
A manufacturer can choose from direct distribution channel to indirect distribution depending upon the
kind of product or market they serve. The two main types of distribution channels are as follows:

I. Direct Channel

II. Indirect Channel

I. Direct Channel (Zero level) The simplest and the shortest mode of distribution is direct channel.
In this channel, the manufacturer directly provides the product to the consumer.
UNSOUGHT / INDUSTRIAL GOODS use Direct Channel. Outdoor salesmen, telemarketing, TV selling, internet
selling etc. belong to Direct Channel
Q. WHICH BUSINESSES GENERALLY, USE A DIRECT CHANNEL? SUITABILITY
1) Big firms adopt this channel to cut distribution costs and to sell.

2) Industrial products of high value for technical assistance

3) Small producers -who cannot afford intermediaries /have small market
4) Producers of perishable commodities- to sell with minimum handling to local consumers
5) Producers of unsought goods - to promote heavily and provide technical support
6) Service vendors-producer and consumer must be present simultaneously.

MANUFACTURER CONSUMERS

Figure 3.2: Zero Level

In zero level there are no intermediaries involved, the manufacturer is selling directly to the customer.
This is called the 'direct channel’ or direct selling. In this the manufacturer or producer supplies the
product to the customer through its I ) own retail outlets and salesmen present there (e.g. Mc
Donald , Patanjali stores). Another option is II) delivering directly to customer either by hand or III)
by the option is using the medium of post office. Similarly, mail order selling, you obtain orders
from your customers who respond by mail or telephone to your advertisements or to letters mailed
directly to their houses.← Q.What is Mail Order Selling

Examples of Direct Channel

Example 1: Eureka Forbes, the company which markets vacuum cleaners and water purifying
equipment. It believes that I ) if the market is in the customer's house, the best way to get there is to
UNIT III : Place & Distribution Page 14
 knock at the door. The company has clearly demonstrated that II)door-to-door selling can be effective in
Indian conditions. One III)benefit of this method is that the co mpany has comp lete control o ver the
produ ct, its image at all stages and IV) the user experience.

Example 2 : Maruti Udyo g selling it cars through NEXA company owned showrooms is direct
channel.
Example 3: Dell Computers was founded by a college freshman Michael Dell. By 1985, the company
had developed its V) unique strategy of offering ‘made to order’. Along with VI) a superior supply chain
and VII)innovative manufacturing,VIII) unique distribution strategy adopted by the company acted as a
differentiator. I X ) Identifying and capitalizing on an emerging market trend, Dell eliminated the
middleman or retailers from their distribution channel. Dell became a strong direct seller, by using
mail-order systems before the spread of the internet. After the internet became more mainstream, an
online sales platform was also established.
Q. What is the direct development that replaced Mail Order?

Early on in through careful analysis of the target market, a study of available channel options and effective
use of a novel idea, Dell computers managed to reach early success in its industry.
Q. What are the ways in which Direct Channel can be made effective?

II. Indirect Channel:

In this channel, a manufacturer doesn’t sell directly to the consumer rather chooses one intermediary
to sell the product to the consumer .

The company may sell to a wholesaler who further distributes to retailers (retail outlets). This may raise
product costs since each intermediary will get their percentage of the profits. This channel may become
necessary for large producers who sell through hundreds of small retailers.

a. One level channel (Manufacturer-Retailer-Consumer): In this only one intermediary is involved.

Normally the manufacturer supply goods directly to retail which finally sell to the end consumer. In
this case the producer ascertains the requirements of retailers at periodical intervals and goods are
supplied accordingly. As and when required, the retailer may also procure goods from the
producer's godown located in that region.
UNIT III : Place & Distribution Page 15
 This channel relieves the manufacturer from burden of selling the goods himself and at the same
time gives him control over the process of distribution. This is often suited for distribution of
consumer durables (which being highly technical and require authentic dealers need a measure of
control and intervention of the producer)and products of high value. For Example: Maruti Udyog
selling it cars through company approved retailers like DD Motors is called indirect channel.

MANUFACTURER RETAILER CONSUMER

Figure 3.3: One Level Channel

b. Two level channel (Manufacturer-Wholesaler-Retailer-Consumer): When the manufacturer

can use the services of the wholesaler as well as the retailer. This is the most common adopted
d istribution network fo r consumer go ods. In this case the manufacturer may supply his products in bulk
to wholesalers. The retailer may buy periodically from the 'wholesaler and sell the same to the
consumers located in his locality. As there are two middlemen (both wholesaler a nd retailer) in this
channel, it is referred to as two level channels (2 level channel) and helps in covering a larger market.
suitable for the producers having
i) Limited finance,
ii) Narrow product line and
iii) Who need expert services and promotional support of wholesalers.
iv) This is mostly used for the products with widely scattered market.

For Example: Consumer goods like oils, cloths, sugar, pulses and soaps etc sold through
nearby retail outlets also called mom and pop shops. Another example can be FMCG being
sold through big retailers like BIG BAZAAR.
Q. Write a note on mom and pop shops

MANUFACTURER WHOLESALER RETAILERS CONSUMER

Figure 3.4: Two level channel

Q. In the three-level channel, whom does the Manufacturer deal with?

UNIT III : Place & Distribution Page 16

 c. Three level channel (Manufacturer-Agents-Wholesaler-Retailer-Consumer): Another
alternative channel of distribution consists of mercantile agents, wholesaler and retailer. In this
case, the manufacturer deals with a mercantile agent. That is when the producer wants to be fully

relieved of the problem of distribution and thus hands over his entire output to the selling agents.
Then the wholesalers buy the goods from the agents and sell the same to retailers. In turn the
retailer sells it to the ultimate consumers. This type of channel is referred to as three level channel
as there are three types of middlemen involved in the distribution. This level is used
particularly when the manufacturer carries a limited product line and has to cover a wide market
where an agent in the major areas are appointed who further contact wholesalers and retailers.

We have understood that there are a number of channels of distribution prevalent. From the
producer’s point of view, more the number of middlemen used, lesser is the cost of
distribution, distribution vary from one type of product to another.
This channel is suitable for wider distribution of various industrial products/ or in export trade where the
manufacturer is not aware of the foreign country’s market situation and leaves it to the local agent there .

UNIT III : Place & Distribution Page 17

MANUFACTURER AGENT WHOLESALER → RETAILER CONSUMER
Figure 3.5: Three level channel

Distribution Channel Intermediaries Marketing intermediaries are also known as

middlemen or distribution intermediaries form an important part of the product distribution
channel.
The people and the organizations that assist in the flow of goods and services from
manufacturer to consumer are known as marketing intermediaries.

EXPLAIN THE ‘four basic types of marketing intermediaries’

They are agents, wholesalers, distributors and retailers.

Middlemen: Anybody acting as an intermediary between the manufacturer and

consumer.

Agents: The agent as a marketing intermediary is an independent individual or

company whose main function is to act as the primary selling arm of the producer and
represent the producer to users. Agents take possession of products but do not actually
own them. Agents usually make profits from commissions or fees paid for the services
they provide to the producer and users.

For Example: travel agents, insurance agents and the organisers of party-based selling
events of Tupperware.

Wholesalers: Wholesalers are independently owned firms that take title to the
merchandise they handle. In other words, the wholesalers own the products they
sell. Wholesalers purchase product in bulk and store it until they can resell it.
Wholesalers generally sell the products they have purchased to other intermediary usually
retailers, for a profit.

Distr ib utors: Distributors are similar to wholesalers, but with one key difference.
Wholesalers will carry a variety of competing products, for instance Pepsi and Coke
products, whereas distributors only carry complementary product lines, either Pepsi
or Coke products. Distributors usually maintain close relationships with their
suppliers and customers. Distributors will take title to products and store them until they

UNIT III : Place & Distribution Page 18

 are sold.
Retailers: The retailer will sell the products it has purchased directly to the end user
for a profit. A retailer takes title to, or purchases, products from other market
intermediaries. Retailers can be independently owned and operated, like small “mom and
pop” stores, or they can be part of a large chain, like Aditya Birla’s More Mega Stores.

BUSINESS TO BUSINESS CHANNELS:

INDIRECT CHANNEL_ Industrial goods Producer → Industrial merchant wholesaler→ industrial

consumer
DIRECT CHANNEL- Industrial goods Producer →Industrial consumer
B2B distribution channels facilitate the flow of goods from a producer to an organizational
customer. Generally, B2B channels parallel consumer channels in that they may be direct
or indirect.
The simplest indirect channel in industrial markets occurs when the single intermediary—
a merchant wholesaler referred to as an industrial distributor rather than a retailer
—buys products from a manufacturer and sells them to business customers. Example-
Tools like hammer, wrench etc. used in business.
Direct channels are more common to business-to-business markets because B2B marketing
often means selling high-dollar, high-profit items to a market made up of only a few
customers. In such markets, it pays for a company to develop its own sales force and
sell directly to customers at a lower cost than if it used intermediaries.

Channels fo r Services
Because services are intangible, there is no need to worry about storage, transportation, and
the other functions of physical distribution. In most cases, the service travels directly from
the producer to the customer. Some services, however, do need an intermediary, often called
an agent, who helps the parties complete the transaction. Examples include insurance agents,
stockbrokers, and travel agents.
E.g. McDonald’s provides franchisees with promotional support, training, management assistance,
in turn, franchisees must meet company standards for physical facilities, buy specific food

UNIT III : Place & Distribution Page 19

products...
, extra 3 P’s are needed in the distribution decisions and marketing strategy of services, I.e. Process,
People, Physical Evidence.

KNOWLEDGE ASSESSMENT 2

State True or False for the following statements:

1. A distribution channel can be defined as the activities and processes required to

move a product from the producer to the consumer.
2. Distribution channel intermediaries are middlemen who play a crucial role in
the distribution process.

3. These middlemen facilitate the distribution process through their money

and transportation.

4. An agent actually gains ownership of the product and usually makes money
from commissions and fees paid for their services.

5. Wholesalers are also independent entities who actually purchase goods from
a producer in bulk and store them in warehouses then goods are resold in
smaller amounts at a profit.

6. Wholesalers seldom sell directly to only end users.

7. A distributor carries products from a single brand or company.

UNIT III : Place & Distribution Page 20

 8. A distributor has close relationship with the producer and consumer.

9. Retailers stock the goods and sell them to the ultimate end user at a profit.

10. Retailers perform set of activities that add value to the product.

Ans: 1. T, 2. T, 3. F, 4. F, 5.T, 6.F, 7. T, 8. F, 9. T, 10. T

Activity:

Take 5 products of your choice and find out which types of channel were involved
before it reaches your hand. Does it use wholesaler or retailer? Is it possible to eliminate
wholesaler?

Session III: Functions of Intermediaries

Manufacturer will not be able to reach to consumers without the intermediaries
like wholesalers and retailers in between. This session focuses on functions
performed b wholesalers and retailers.

Wholesalers
The term i) wholesaler applies to all merchant or traders who purchase and sell in
large quantities. A i i ) wholesaler provides an important link between the manufacturer
or producer and the retailer. It i i i ) takes title to the goods he handles and iv) assumes
marketing risks in the process of distribution of goods. He v) purchases in bulk and vi)
sell in small lots to the vii) retailer or industrial users and is viii) generally away
from the ultimate consumers.

UNIT III : Place & Distribution Page 21

Functions Of Wholesalers

The wholesaler performs the following important marketing functions in the process of
distribution of goods and service:

 Buying And Selling: The wholesaler i ) make an estimate of demand for the goods,
and then ii) purchase and assembly different varieties of goods from different
manufacturers spread throughout the country. They also iii) undertake import of
goods from different countries.
 Storage: Wholesaler keep the goods assembled by them in their warehouse to supply
them to retailers whenever required by Breaking the Bulk .They help the
manufacturers and retailers b y making storage arrangement, in such a way that they not
deteriorate or be stolen, in the time gap before they are bought by the retailers.

Transportation : Wholesalers make transportation arrangement from the premises of

manufacturers to their godowns and from their godowns to the retail stores. They often
maintain their own fleet of vehicles for this purpose.They deliver the right quantity of goods
in the right places , without any deterioration . The insure the goods, take care of packing and
handling and lift the burden of dispersal from the producer , and enable the retailer to get a
continuous supply.

 Grading And Packing: Wholesalers grade the goods according to certain standards
which they have purchased from different manufacturers. Some manufacturers
also give brand names to graded products to convince the consumers or industrial
users about the quality of the products they deal in. They also undertake the
packaging of goods in convenient lots.
 Financing: Wholesalers provide financial accommodation to both the
manufactures and the retailers. They generally purchase goods on cash basis from
the manufactures and sometimes also give advance to the manufactures. Thus, the
manufactures need not wait till product are sold .The wholesalers help the retailers
by selling the goods on credit.
 Risk-taking: Wholesalers assumes a large number of risks in the process
of distribution of goods. These risks may occur i) on account of changes in prices
and demands, ii) spoilage of goods, and i i i ) bad debts. I v ) that they can be

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 disposed of only at a lower price than the cost price to the retailer, v) theft and
misappropriation (pilferage), which are specially high when goods are in transit.
Thus, they undertake many marketing risks which would have been undertaken by
the manufactures and retailers.

 Promotion: The wholesalers job’s does not end with the selling of goods to
the retailers. They also assist in the dispersal of goods by the retailers situated in
various markets .They perform advertising and other sales promotion activities in
order to promote the sale of their product.
A n x i l l i a r y S e r v i c e s To market the g oods by advertising, demonstrating, or
displaying them in ways appropriate to the class of goods concerned. This may also
involve other processes such as packaging, blending, grading , labelling and branding.

Retailers

Features
 Buys from producers and sells to household consumers
 Buys in small quantities according to size of usage of consumer
 Are placed in all convenient locations near household consumers
 Have a large variety of goods
 Have personal touch with consumers

According to Stanton, Retailing consists of the sale, and all activities directly
related to the sale of goods or services to the ultimate consumer, for personal, non-business
use. Retailing or retail trade involves all such activities which are related to direct sale of
goods to the ultimate consumer. Retail trade is usually done by the retailers. A retailer may
be defined as a dealer in goods and services who purchases from manufacturers and
wholesaler and sells to the ultimate consumer.

Function of Retailers

Retail stores or retailers have strategic importance as a channel of distribution. They

perform the following function:

Services of retailers

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 Manufacturers and Wholesalers
Distribution of goods
Ascertaining customer’s need
Providing information
Reliving from difficulty of small sales
Customers
o Largest choice
o Supply of goods in
small quantities
oAdvice to customers
oPersonal service
Home delivery
o Credit facility
o Customer
convenience
o After sales service

 Collection of goods: Retailers purchase and collect goods from large number of
wholesales and manufactures to meet the needs of the ultimate consumers. he performs the
twin functions of buying and assembling of goods.

2. Storage:

A retailer maintains a ready stock of goods and displays them in his shop (through effective store
décor, window display,P.O.P.

3. Selling:

The retailer sells goods in small quantities according to the demand and choice of consumers. He
employs efficient methods of selling (like various sales promotion techniques, offers and
discounts and announcing in the local periodicals) to increase his sales turnover.

 Time Utility: Retailers keep a large number of products of different varieties in

stock to sell them to the customers whenever they require. Thus, they create
time utility in searching variety of products.
Transportation: Retailers perform transportation function by carrying the goods
from the wholesaler and handing them over to the ultimate consumers.

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 Sometimes, they also provide free home delivery of products to the customers.
 Financing: Retailers sell the goods on credit to the consumers and thus they
increase their short-term purchasing power. In this process, they undertake the
risk of bad debts, risk due to fire, theft, spoilage, price fluctuations.
 Customer Education: Retailers educate the customers by informing them about the
availability and diverse uses of new products along with their demonstration.
 Spokesperson of Customers: Retailers act as the spokesperson or agents of the
customers. They communicate the needs or demands of their customers to the
wholesalers and manufactures. Thus, they help the customers in getting the
want-satisfying products and help the manufacturers in producing the products
which are desired by the customers.

Difference between Wholesaler and Retailer

Wholesaler Retailer

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 1. Deals in large quantities and on a large 1. Deals i n small quantities and on small
scale scale
2. Handles a small number of items and 2. Handles a large number of items and
varieties varieties
3. First outlet in the chain of distribution 3. Second outlet in the chain of distribution
4. Sells to retailers and industrial users 4. Sells to consumers
5. Receives goods from 5. Receives goods from wholesalers and
manufacturers/producers sometimes from the manufacturers
6. Location o f a wholesaler’s shop is not 6. Location of retailers’s shop near the
very important residential areas is very important
7. Window display is a must to attract
7. Window display is not very customers
important 8. Sells at a higher margin of profit as he
8. Sells at a very low margin of profit has to spend on window display and pay
as turnover is very fast higher rent for accommodation in a central
place
9. Provide after-sale service
9. Do not provide after-sale service

Types of Retailers on the basis of fixed location:

(i) Itinerant Retailing
(ii) Fixed Shop Retailing

 Itinerants or Mobile traders:- are those retailers who carry on their business by
moving from place to place for selling the products and have no fixed business
premises. They serve either at the consumer's doorsteps or on busy places frequently
visited by the customers. They do not have any particular line of business and carry
very little stock of those goods.
 The hawkers(on bicycles or hand-carts); and
 Peddlars ( They carry their wares on their heads or on their back)
 cheap jacks(hire small shops in residential localities to display their wares.);
 market traders (small-scale sole-proprietors who hold stalls at different places
on fixed days known as “market days” which may be once a week. ) and
 street sellers (pavement vendors) fall under this category.

 Fixed Shop Retailers:- are those retailers which have fixed business premises and
operate shops located in residential areas or markets. The fixed-shop retailers can be
classified into two distinct types on the basis of the size of their operations. These are:
(a) small shop-keepers, and
(b) large retailers

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 Small shop keepers include:-
(i) street stalls:- are the small shops on the roadside, street-crossing, bus stops, etc.
They sell a limited variety of products of regular use like stationery, grocery, etc;
(ii) dealers of second hand goods:- are engaged in purchase and sale of used goods
like books,clothes, etc;
(iii) general stores or variety stores:- are the shops which deal in all types of general
consumer goods of regular use like bread, butter, paper and pencils,etc. They are
set up in residential areas or busy markets. They provide services like goods on
credit and home delivery to their customers;
(iv) speciality shops:- are the shops which deal in only one or two special types of
goods. They are generally located in shopping centres. For example, chemist
shops,readymade garments shop, sweets shop, etc.

Large Scale Retailers – Departmental store, Multiple shops, Mail order business, Co-operative
societies and Supermarkets.

Departmental Stores:
A departmental store is a large establishment offering a wide variety of products, classified into
well-defined departments, aimed at satisfying practically every customer’s need under one roof.
It has a number of departments, each one confining its activities to one kind of product. For
example, there may be separate departments for toiletries, medicines, furniture, groceries,
electronics, clothing and dress material

Advantages:
(i) Attract large number of customers: As these stores are usually located at central
places they attract a large number of customers during the best part of the day.
(ii) Attractive services: A departmental store aims at providing maximum services to the
customers. Some of the services offered by it include home delivery of goods,
execution of telephone orders, grant of credit facilities and provision for restrooms,
telephone booths, restaurants, saloons etc.
(iii) Economy of large-scale operations: As these stores are organised at a very large-
scale, the benefits of large-scale operations, particularly, in respect of purchase of
goods are available to them.
Disadvantages:
(i) Lack of personal attention: Because of the large-scale operations, it is very difficult to
provide adequate personal attention to the customers in these stores.
(ii) High operating cost: As these stores give more emphasis on providing services, their
operating costs tend to be on the higher side. These costs, in turn, make the prices of
the goods high. They are, therefore, not attractive to the lower income group of
people.

Multiple Shops Chain Stores or Multiple Shops are networks of retail shops that are owned and
operated by manufacturers or intermediaries. Under this type of arrangement, a number of shops

UNIT III : Place & Distribution Page 27

with similar appearance are established in localities, spread over different parts of the country.
These different types of shops normally deal in standardised and branded consumer products,
which have rapid sales turnover.
Advantages of Multiple shop:
(i) Economies of scale: As there is central procurement/manufacturing, the multiple-shop
organisation enjoys the economies of scale.
(ii) No bad debts: Since all the sales in these shops are made on cash basis, there are no
losses on account of bad debts.
(iii) Transfer of goods: The goods not in demand in a particular locality may be
transferred to another locality where it is in demand. This reduces the chances of dead
stock in these shops.

Disadvantages of Multiple Shops

i) Limited selection of goods: The multiple shops deal only in limited range of products,
mostly those produced by the marketers. They do not sell products of other
manufacturers. In that way the consumers get only a limited choice of goods.
ii) Lack of personal touch: Lack of initiative in the employees sometimes leads to
indifference and lack of personal touch in them.

Distinction between Departmental stores and Multiple Shops

Departmental stores and Multiple shops are large scale retailing institutions but they differ in
several aspects which are as follows :

Departmental Stores Multiple Stores

1. It is centrally located and tries to attract 1. It goes as near to the customers as possible
customers from wide areas.

2. It deals with wide variety of goods 2. It deals with limited number of products
only.

3. It offers many free services and 3. It offers no services and emphasises on

emphasises convenience and quality economy of costs

4. It has higher operating costs and sells at a 4. It has lower operating costs and sells at a
higher price. lower price

5. It is not flexible, therefore, closure of the .5. It is flexible and can be closed at any time
stores is not an easy process by transferring stock to another branch

6. The decoration of different departments is 6. There is uniformity in shop decoration, its

not uniformly maintained. layout, window display etc.

Mail order Business

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Mail order refers to ‘shopping by post’. It is a distinct form of retail business wherein the orders
are accepted and goods delivered by post. It is a method of non-store, impersonal and direct
selling that eliminates the middlemen. Thus mail order business can be defined as an
establishment that receives orders by mail and make its sales by mail, parcel etc.
Advantages
(i) Limited capital requirement: Mail order business does not require heavy expenditure
on building and other infrastructural facilities. Therefore, it can be started with
relatively low amount of capital.
(ii) Elimination of middle men: The biggest advantage of mail-order business from the
point of view of consumers is that unnecessary middlemen between the buyers and
sellers are eliminated. This may result in lot of savings both to the buyers as well as to
the sellers.

(iii)
(iv)
Absence of bad debt: Since the mail order houses do not extend credit facilities to the customers,
there are no chances of any bad debt on account of non-payment of cash by the customers.

UNIT III : Place & Distribution Page 29

UNIT III : Place & Distribution Page 30
Disadvantages of Mail Oder Business:

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 (i) Lack of personal contact: The buyers are not in a position to examine the products
before buying and the sellers cannot pay personal attention to the likes and dislikes of
the buyers and cannot clear all their doubts through catalogues and advertisements.
(ii) Delayed delivery: There is no immediate delivery of goods to the customers, as
receipt and execution of order through mail takes its own time
Consumers’ Co-operative Stores
A consumer cooperative store is an organisation owned, managed and controlled by consumers
themselves. The objective of such stores is to reduce the number of middlemen who increase the
cost of produce, and thereby provide service to the members.

Advantages :
(i) Ease information: It is easy to form a consumer cooperative society. Any 10 people can
come together to form a voluntary association and get themselves registered with the
Registrar of Cooperative Societies by completing certain formalities.
(ii) Lower prices: A cooperative store purchases goods directly from the manufacturers or
wholesalers and sells them to members and others. Elimination of middlemen results in
lower prices for the consumer goods to the members.
(iii) Cash sales: The consumer cooperative stores normally sell goods on cash basis. As a
result, the requirement for working capital is reduced.
Disadvantages:
(i) Lack of initiative: As the cooperative stores are managed by people who work on
honorary basis there is a lack of sufficient initiative and motivation amongst them to
work more effectively.
(ii) Lack of business training: The people entrusted with the management of cooperative
stores lack expertise as they are not trained in running the stores efficiently

Super Markets
A super market is a large retailing business unit selling wide variety of consumer goods on the
basis of low margin appeal, wide variety and self-service. The goods traded are generally food
products and other low priced, branded and widely used consumer products such as grocery,
utensils, clothes, electronic appliances, household goods, and medicines.
Advantages:
(i) One roof, low cost: Super markets offer a wide variety of products at low cost, under
one roof. These outlets are, therefore, not only convenient but also economical to the
buyers for making their purchases.
(ii) Wide selection: Super markets keep a wide variety of goods of different designs,
colour, etc., which enables the buyers to make better selection.
(iii) No bad debts: As generally the sales are made on cash basis, there are no bad debts in
super markets
Disadvantages:
(i) No personal attention: Super markets work on the principle of self-service. The
customers, therefore, don’t get any personal attention.
(ii) Mishandling of goods: Some customers handle the goods kept in the shelf carelessly.
This may raise costs in super markets.

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Knowledge Assessment 3
State True or False:

1. Retailers deals in large quantities and on a large scale.

2. Retailers handle a small number of items and varieties.
3. Retailer is first point of contact in the chain of distribution.
4. Distributor sells to retailers and industrial users.
5. Retailers receive goods from manufacturers/producers.
6. Location of a wholesaler’s shop is not very important.
7. Window display is equally important for wholesalers and retailers.
8. Wholesalers sell at a very low margin of profit as turnover is very fast.
9. Retailers do not provide after-sale service while wholesalers do.
10. Big Bazaar and Spencers are big chain of retailers.

Ans: 1. F, 2. T, 3. T, 4. T, 5. F, 6.t, 7.F, 8. T, 9. F, 10. T

Factors Affecting the Selection of the Channel of Distribution

An entrepreneur has to choo se a suitable channel of distributio n fo r his pro duct such that
i) the channel chosen is flexible,
ii) effective and
iii) consistent with the declared marketing policies and programmes of the firm.
While selecting a distributio n channel, the entrepreneur
iv) should compare the costs
v) sales volume and profits expected from alternative channels of distribution
Distribution intensity refers to the number of intermediaries through which a
manufacturer distributes its goods. The d e c i s i o n about d i s t r i b u t i o n intensity
should ensure adequate market coverage for a product. Intensity of
Distribution measures how much a businessman wants to
s a t u r a t e t h e e x i s t i n g o u t l e t s w i t h h i s p r o d u c t s . In general, distribution
intensity varies along a continuum with three general categories:
 intensive distribution,
 selective distribution, and
 exclusive distribution.

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 Intensive Distribution
INTENSIVE DISTRIBUTION strategy seeks to distribute a pro duct through all
available channels, all possible types of outlets and maximum number of outlets. Usually,
an intensive strategy’s coverage is of a large region, items with wide appeal across broad
groups of consumers, such as convenience goods Eg. Coca cola is made available in small
and big supermarkets, theatres, vending machines, restaurants, hotels, canteens, airports,
railway stations, in all sizes. Maggi employs intensive distribution. Its channel partners
include distributors, retailers and consumers. Nestle follows a twofold path for distribution.
In the first, the product is available to every local store and the second where the stock is
made available in every mall and shopping centers.

HOW CAN A CONVENIENCE GOOD THAT NEEDS INTENSIVE DISTRIBUTION BE

MADE TO NEED SELECTIVE DISTRIBUTION?
Procter & Gamble, also distributes its products in this way. Here, the advantages are maximum
brand exposure and consumer So very popular items, with a large volume of sales suit
Intensive Distribution.
But ‘Lack of Control over the wide area’, ‘possibility of black- marketing and hoarding by
middlemen’ are the risks.
SELECTIVE DISTRIBUTION
• Selective distribution is distribution of a product through only a limited number
of channels. This arrangement helps to control price cutting. Selective
distribution is the middle path approach to distribution as the firm selects some
outlets to distribute its products thereby enabling the manufacturer gain optimum
market coverage and more control.

 By limiting the number of retailers, marketers can reduce total marketing costs
while establishing strong working relationships within the channel.
 Moreover, selected retailers often agree to comply with the company’s rules for
advertising, pricing, and d isplaying its products.
 Where service is important, the manufacturer usually provides training and
assistance to dealers it chooses.

UNIT III : Place & Distribution Page 34

  Cooperative advertising can also be utilized for mutual benefit.
 Selective distribution strategies are suitable for shopping products such as
clothing, furniture, household appliances, computers, and electronic equipment for
which consumers are willing to spend time visiting different retail outlets to
compare product alternatives.
 Producers can choose only those wholesalers and retailers that have
 i) a good credit rating,
 ii)provide good market coverage,
 iii) serve customers well, and
 iv) cooperate effectively.
 Wholesalers and retailers like selective distribution because it results in higher
sales and profits than are possible with intensive distributio n where sellers have
to co mpete on price.←Q. Difference between Intensive and Selective Distribution
 Consumers expect the products to be the ORIGINAL one (brand trust), every time a
shopping or speciality product is bought. Eg., one should get the real Samsung phone
with the same features, same guarantee (and not a duplicate)every time and
everywhere it is bought. This means, the channels have to stream line the product
through known authorized dealers to generate this trust.

They are specially known brands are made more and more available around the world
(which is the reason the standards of living rise) (Higher distribution also brings in
economies of large scale production and large scale distribution reducing costs and thus
prices making these useful items within affordable prices of the middle and lower income
group) .
So a wider distribution through selected approved outlets is necessary for shopping
goods
(It is to be noted that a) unknown or b) new c) Chinese brands are low priced brands and
to penetrate the market Eg. mobiles are found in unauthorized dealers eg. Unknown and
new brands available through road-side shops proves the above point
 The outlets should be found near to other brands for easy comparison of brands eg.
Gold shops, electronics outlets, office-wear clothiers

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 Control over the market at the cost of a limited market is the main feature
EXCLUSIVE DISTRIBUTION
SPECIALTY PRODUCTS.
Specialty goods are very “high end” lifestyle or luxury products, or products related to a
consumer’s hobby (like collecting antiques) for which the consumer is willing to make special
purchasing efforts. Examples include high value cars or high performance bikes, specialized
music equipment or professional photographic equipment.
Exclusive distribution is distribution of a product through one wholesaler or retailer in
a specific geographical area. The automobile industry provides a good example of
exclusive distribution.
 Though marketers may sacrifice some market coverage with exclusive distribution,
they often develop and maintain an image of quality and prestige for the product.
 In addition, exclusive distribution limits marketing costs since the firm deals
with a smaller number of accounts.
 In exclusive distribution, producers and retailers cooperate closely in decisions
concerning
i)advertising and promotion,
ii)inventory carried by the retailers,
iii)and prices.
 Exclusive distribution is typically used with products that are high priced, that have
considerable service requirements, and
 when there are a limited number of buyers in any single geographic area.
 Exclusive distribution allows wholesalers and retailers to recoup the costs associated
with long selling processes for each customer and, in some cases, extensive after
-sale service.
 Specialty goods are usually good candidates for this kind of distribution intensity.
1) e.g. Rolls-Royce. Here, the advantages are establishing image and getting higher markups.
The speciality outlets would have the same high quality and identical décor, facilities
and service quality and set standards in all its authorized outlets. Eg. Any where a person
visits the Hilton hotels / Shehnaz Hussain parlours or in all Rolls Royce showrooms, one

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 can expect similar high quality expertise and services. This means EXCLUSIVE
DEALERSHIP

2) The benefit of EXCLUSIVE DEALERSHIP is also the added services and consumer
recognition and experience can be given in such speciality outlets to the upper class
consumer.
E.g. Availability of exclusive personal shoppers, plush rich décor , customizing product/service
to individual needs, very sophisticated packing, recognizing regular cutomers’needs in a 7 star
hotel (all of which make the high income customer feel very special and unique -which comes at
a very high price)

3) Buyer behaviour involvement (as buyers are well aware of the product and their
comparisons) is very high and Product Experience is also very high, as perceived risk by
consumer (in price paid , status lost/gained by the experience) is very high.

4) Speciality goods should be placed in an upper class locality/location and not produced on
a mass scale, not only because the customers are few and far apart but also because the
upper class consumers do not want it to be available to be bought by the middle-income
group. This adds a special aura of úniqueness’. Hence EXCLUSIVE DEALERSHIP Eg.
Chanel, Dior, Rolls- Royce showrooms may be only in very rich cities and locations.

Q. Can a product belong to Shopping as well as Speciality goods’ category?

An important distinction needs to made between specialty goods and shopping goods. An
automobile can be both a shopping product and specialty product; automobiles that offer the
primary benefit of transportation are shopping goods, but like sports cars or luxury cars would be
termed as specialty products. The difference is in the way consumers buy these products and
what they value more.
-specialty product for one target market (middle income customer) may be a shopping product
for another (higher income customer)

Every producer, in order to pass on the product to the consumer, is required to

select a channel for distribution. The selection of the suitable channel of distribution is

UNIT III : Place & Distribution Page 37

 one of the important factors of the distribution decisions. The following factors affect
the selection of the channel of distribution:

1) Factors Pertaining to the Product

Keeping in view the nature, qualities and peculiarities of the product, could only the
channel for distribution be properly made. The following factors concerning the product,
affect the selection of the channel of distribution:

 Price of the Product. The products of a lower price have a long chain of distributors.
As against it, the products having higher price have a smaller chain. Very often, the
producer himself has to sell the products to the consumers directly.
 Perishability/Fashion Products. The products which are of a perishable nature need
lesser number of the intermediaries or agents for their sale. Under this very rule,
most of the eatables (food items), and the bakery items are distributed only by the
retail sellers.
 Size and Weight. The size and weight of the products too affect the selection of
the middlemen. Generally, heavy industrial goods are distributed by the producers
themselves to the industrial consumers.

Wide Range o f pro ducts

An entrepreneur producing a wide range of products may find it economical to set
up his own retail outlets and sell directly to the consumers
A New Product needs greater promotional efforts in the initial stages and hence few
middlemen may be required.

Width, Depth, Consistency of Product Mix_The more the product lines, or product varieties,
or in consistency the more the channel members that have to be used.
Brand Image_ If the brand is well embedded in the market, it will get accepted by the
channels easily.

Technical Nature. Technical products are of the nature that prior to their selling, the

UNIT III : Place & Distribution Page 38

consumer is required to be given proper instructions with regard to its consumption. In
such a case less of the middlemen are required to be used.
Goods Made to Order. The products that are manufactured as per the orders of the
customers could be sold directly and the standardized items could be sold off only by the
middlemen.
After-Sales Service. The products regarding which the after-sales service is to be
provided could be sold off either personally or through the authorized agents.

2) Facto rs Pertaining to the Consumer or Market

The following are the main elements concerned with the consumer or the market:
 Number of Customers. If the number of customers is large, definitely the services
of the middlemen will have to be sought for. As against it, the products whose
customers are less in number are distributed by the manufacturer himself.
 Expansion of the Consumers. The span over which are the customers of
any commodity spread over, also affects the selection of the channel of distribution.
When the consumers are spread through a small or limited sphere, the product is
distributed by the producer himself or his agent. As against it, the goods whose
distributors are spread throughout the whole country, for such distributors,
services of wholeseller and the retailer are sought.
 Size of the Order. When bulk supply orders are received from the consumers,
the producer himself takes up the responsibility for the supply of these goods. If
the orders are received piece-meal or in smaller quantities, for it the services of
the wholesaler could be sought. In this way, the size of the order also influences
the selection of the channel of the distribution.
 Objective of Purchase. If the product is being purchased for the industrial use; its
direct sale is proper or justified. As against it, if the products are being purchased
for the general consumption, the products reach the consumers after passing
innumerable hands.
 Need of the Credit Facilities. If, for the sale of any product, it becomes
necessary to grant credit to any customer, it shall he helpful for the producer that

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 for its distribution,

the services of the whole seller and retailer businessmen be sought. In this way,
the need of the credit facilities too influences the selection of the channel of
distribution.
3) Fa cto rs Perta ining to the Middlemen
The following are the main factors concerned with the middlemen:
 Services Provided by Middlemen. The selection of the middlemen be made
keeping in view their services. If some product is quite new and there is the need
of its publicity and promotion of sales, then instead of adopting the agency
system, the work must be entrusted to the representatives.
 Scope or Possibilities of Quantity of Sales. The same channel should be
selected by means of which there is the possibility of more sales.
 Attitude of Agents towards the Producers' Policies. The producers generally
prefer to select such middlemen who go by their policies. Very often when the
distribution and supply policies of the producers being disliked by the middlemen,
the selection of middlemen becomes quite limited.

 Cost of Channel of Distribution. While selecting the channel of distribution, the

cost of distribution and the services provided by the middlemen or agents too
must be kept into consideration. The producers generally select the most
economical channel.
4) Factors Pertaining to the Producer or
Compa ny
The following factors, concerning the producer, affect the selection of the
channel of distribution:
 Level of Production. The manufacturers who are financially sound and are of a
larger category, are able to appoint the sales representatives in a larger number
and thus could distribute the commodities (products) in larger quantities. As
against it, for the smaller manufacturers, it becomes necessary to procure the
services of the wholesalers and the retail traders.

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  Financial Resources of the Company. From the financial point of view, the
stronger company needs less middlemen.
Managerial Competence and Experience. If some producer lacks in the
necessary managerial experience or proficiency, he will depend more upon the
middlemen. The new manufacturers in the beginning remain more dependent upon
the middlemen.
5) Other Factors
 Distribution Channel of Competitors. While determining the channel of
distribution, the channels of distribution of the competitors too must be borne in
mind.
 Social Viewpoint. What is the attitude of society towards the distribution, this
fact too must be kept into consideration while selecting the middlemen.
 Freedom of Altering. While selecting the agents, this fact too must be kept into
mind that in case of need, there must be the liberty of changing or replacing the
agents (middlemen).
PHYSICAL DISTRIBUTION
The term physical distribution is used to describe a series of interrelated activities concerned
with transporting finished goods or raw materials so that they arrive in usable condition at the
designated place when needed.
The three components of physical distribution is 1)transportation and 2)warehousing and 3)
inventory ,management. Physical distribution involves the planning, implementing and
controlling of the physical flow of goods
Meaning: - Physical Distribution is a marketing activity that is concerned with the handling and
movement of goods. It includes all those activities connected with the efficient movement of
goods from the place of production to the place of consumption.

According to Philip Kotler, “Physical Distribution involves planning, implementing and

controlling the physical flow of materials and final goods from points of origin to points of use to
meet the customers needs at a profit”.

Physic al Distribution

Logistics has the objective of delivering exactly what the customer wants —a t the right

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 time, in the right place, and at the right price. In planning for the delivery of goods to
customers, marketers have usually looked at a process termed physical distribution, which
refers to the activities used to move finished goods from manufacturers to final customers.
Physical distribution activities include order processing, warehousing, materials handling,
transportation, and inventory control.

This process impacts how marketers physically get products where they need to be, when
they need to be there, and at the lowest possible cost. In logistics, the focus is on the
customer. When planning for the logistics function, firms consider the needs of the
customer first. The customer’s goals become the logistics provider’s goals. With most
logistics decisions, firms must compromise between low costs and high customer service.

Role/Importance of Physical Distribution: Physical distribution provides a new orientation for

marketing. It gives distribution factors the importance they deserve. These are:

1. Creation of Utilities: The major components of physical distribution are transportation

and warehousing. Creation of or adding of utility is addition of value to a thing. It is
transport system that creates place utility making goods from the places where they are
not needed to places where they are badly needed. Warehousing system is known for
creating time utility by holding goods from the time of their production to consumption
thus avoiding gluts and shortages. The outcome is the maximization of consumer
satisfaction and profits to the firm.

2. Improved Consumer services: Customer services in physical distribution function consist

of providing products at the time and location corresponding to the customer needs.
Customers would be cent percent satisfied if a range of products were available at the
right place and time in sufficient quantities by taking into account time, dependability,
communication, availability and convenience.

3. Cut in distribution costs: Prices paid by the consumers consist of not only the production
costs but also delivery costs. Therefore physical distribution system can lead to slashing
down these costs. There are tangible and intangible costs for which customers bears.

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 These costs can be reduced by systematic planning. Eg. Making each warehouse
distribute to its vicinity instead of 1 warehouse to all retailers (which will cause delays)
4. Increased market share: A well designed physical distribution frame can decentralize its
warehousing operations; devise the combinations of efficient and economic means of
transport to penetrate into the areas untapped so far, planning inventory to avoid stock
outs and gluts attaining increased market share.. These minute points are constructive in
arresting the loss of consumer interest and loyalty. Eg. A cheaper
cargo plane instead of train

5. Price stabilization: Through its components transport and warehousing facilities it can bring
about much desired price stabilization through adjustments between the demand for and supply
of goods thus preventing price fluctuations and distortions.

KNOWLEDGE ASSESSMENT 4
Multiple Choice Questions:
1.Functions of wholesalers are
a) Buying and selling
b) Storing and grading
c) Packing and
assembling
d) All of the above
2. Retailing consists of the sale, and all activities directly related to the sale of
goods or services to the ultimate consumer, for personal, _ use.
a) business
b) non-business
c) both
d) none
3. Along with Producer based factors, few more factors that affect the
selection of channel of distribution are:
a) Product based
b) Market based

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 c) Middlemen based
d) All of above
2. Which of the following is NOT considered a type of reseller?

) wholesaler

b) retailer
c) manufacturer
d) distributor
3. Which of the following is NOT included in product decisions?
a) Styling
b) Brand name
c) Warehousing
d) Packaging
4. Which of the following takes place at retailer’s end?
a) Promotion
b) Placing
c) Pricing
d) Exchange
5. Factors pertaining to product that affect the channel of distribution are:
a) Price, perishability, size and weight
b) Design, comfort, size
c) After sale services and technical nature
d) Both a and c

6. Which of the following 4Ps of marketing mix involves decisions regarding

channels coverage, assortments, locations, inventories or transports?
a) Product
b) Price
c) Place
d) Promotion
7. At least how many parties should be included in “Exchange”?

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 a) Two
b) Three
c) Four
d) Five
8. ‘Breaking the bulk’ is function of
a) Wholesaler

b) Retailer

c) both
d) none

Ans. 1. D, 2. B, 3. D, 4. C, 5. C, 6. D, 7. D 8. C, 9. A, 10. B

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